Google Wants Even Earlier Exits than in “Early Exits”

The main thesis of my book Early Exits is that entrepreneurs and angel investors would make more money, and have more fun, if they built companies around a strategy of early exits.

In “Early Exits” show that most M&A transactions are under $30 million. More recently, I have been saying that the median price might be as low as $15 million.

Part of my message to entrepreneurs is that they don’t need to build companies to be profitable before they can execute very good M&A exits. This is a main theme in why I think this period will come to be called a Golden Era for tech entrepreneurs.

The fundamental driver behind this trend is that big companies have learned that M&A is the best way for them to grow.

But even I was surprised to learn just how early Google wants to do acquisitions.

Charles Rim, is one of the five most senior M&A professionals at Google worldwide. He did an interview for Corum’s online “M&A Class.” I am grateful to Corum for organizing this event and for posting the archive. (The Corum archive does not seem to be available any longer, so I’ve re-posted below. There’s also a transcript here.)

A few of the fascinating points from the interview are:

“90% plus of our transactions are small transactions. So that would be less than 20 people, less than $20 million and that is truly the sweet spot”

“we do prefer companies that are pre-revenue”

“technical staff, engineering, a strong engineering team, these are the things that we think are very important to the future success of Google and important for us to use acquisitions in that manner.”

This provides some excellent insight into how a very large company like Google thinks about acquisitions. This is a good confirmation of the trend toward early exits, but it goes even further than I did in my book.

Google actually prefers companies that are pre-revenue. In other words, Google doesn’t want to buy the business, they want to buy the team. The people. The entrepreneurial ingredient that they know they need to keep their company growing and healthy.

You’ve heard it from one of the guys who really knows - you can sell a tech company today long before it’s profitable, even before it has revenue. And if it was up to Google, it would be the latter.

As an entrepreneur myself, how do I get Google’s attention, before I make $20M in revenue? I would love to be acquired by GOOG, but I’d feel kind of silly writing them an email saying “hey, I’m the author of Foo, I would love to sell for $15M.” I have a hard time believing they’d be seriously interested that way.

Great question, Allen. In my first company we effectively put a bunch of cash in a paper bag to pay someone to leak to our major competitor that we were in play (seriously, here’s the story if you are interested.

Fortunately, that is now totally ‘old school’.

Unfortunately, this is not something you can do yourself. No matter how smart you are, there is just too much to learn about M&A transactions. (This video describes everything I did wrong the first time here.)

Please don’t make the mistakes I did the first time. Find a really excellent, experienced M&A advisor in your local area.

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Great post Basil. I have also been seeing this trend from more companies than just Google lately. An unexpected side-effect of the new economics of building web companies has made it uneconomical for larger companies to support R&D departments. More companies are shutting them down and using the startup ecosystem as their own internal R&D. Turns out the companies that are good at finding these companies are the ones who are innovating and winning over their respective competition.

Thanks, Danny. You are correct – it’s not just Google. This is a trend.

It’s not only that it’s uneconomical for the big companies to do R&D. I believe it’s that today’s best and brightest prefer to be entrepreneurs and join organizations like Bootup Labs, Techstars and YCombinator.

dannyrobinson

hallelujah!

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David K

Great post (and great blog; added it to my RSS feed). I work for a pretty large software company and we grow almost completely by acquisition now for pretty much all the reasons you enumerated.

Thanks for contributing David. I agree – it’s not just Google or the Fortune 100. Most medium and large companies have learned that it’s more capital efficient to grow by acquisition than internal, organic methods.